Daily Financial News Analysis – 14th May’20

Table of Contents

MSMEs

Finance minister Nirmala Sitharaman rolled out the first instalment of the ₹20 lakh crore economic stimulus announced by Prime Minister Narendra Modi.
Offering loan guarantees and funds to small businesses, non-bank lenders and power distribution companies.
The ₹5.94 lakh crore package seeks to ensure credit and liquidity for the sectors that are among the worst hit by the Covid-19 crisis.
The bulk of the package is in the form of guarantees that require no immediate allocation from the budget, implying limited impact on the fiscal deficit and more room for support to other sectors.
The direct immediate support from the budget is less than ₹50,000 crore.
“Essentially, this is to spur growth to build a very self-reliant India and that’s why this initiative is called Atmanirbhar Bharat Abhiyan,” Sitharaman said on Wednesday, adding that the stimulus programme has been prepared after “wide and deep” consultations.
Including the measures announced by the government and the Reserve Bank of India earlier, the latest measures add up to ₹12.88 lakh crore, leaving a balance of ₹7.12 lakh crore.
Additional measures will be announced over the next few days and are likely to focus on labourers, farmers, the middle class and industry.
“The policy bouquet unveiled by the government is well-structured, suitably targeted, within reasonable fiscal limits but still having the maximum impact,” said SBI chairman Rajnish Kumar.
Industry said the stimulus was well targeted.
“The measures for NBFCs, HFCs (housing finance companies) and MFIs (microfinance institutions) inject direct liquidity to where it is required most, and will enable them to support their borrowers through a period of cash flow stress,” said N Venkatram, CEO Deloitte India.

MSME Definition

Micro: those with investment of up to Rs 1 crore and turnover of up to Rs 5 crore
1. earlier definition classified investments of up to Rs 25 lakh for manufacturing and up to Rs 10 lakh for services.
Small: Rs 10 crore in investment and Rs 50 crore in turnover
1. against investment of up to Rs 5 crore in manufacturing and up to Rs 2 crore in services.
Medium: the investment limit has been doubled for manufacturing enterprises from Rs 10 crore to Rs 20 crore and quadrupled for services from Rs 5 crore to Rs 20 crore. In addition to the turnover criteria of up to Rs 100 crore for both sectors in this size.

NBFCs

Economic Affairs Secretary Tarun Bajaj: A special purpose vehicle will be set up to provide liquidity support to non-banking finance companies (NBFCs).
This SPV will be the main vehicle for providing support to NBFCs as part of the economic package announced Tuesday and will carry out primary and secondary market operations toward this end.
The government will stand 100% guarantee under the ₹30,000 crore window that was unveiled by finance minister Nirmala Sitharaman as the first part of the economic package.

Cost of Funds

Nonbank lenders and microfinance companies, even those at the lower end of the rating curve, may see borrowing costs fall and liquidity increase with the finance minister announcing a ₹75,000-crore package to help them tide over a liquidity crunch caused by risk aversion among investors.
The two schemes could help these firms raise money, and also lend to SMEs.
The government will guarantee all securities under the ₹30,000-crore scheme while the ₹45,000-crore scheme comprises a guarantee of up to 20%.

Discom Booster

RK Singh: The ₹90,000 crore liquidity booster for distribution companies announced will kick-start a chain of payments that will make power and related sectors like coal viable.
Power Finance Corp and REC Ltd are all set to launch on Thursday the liquidity-boosting scheme announced by finance minister Nirmala Sitharaman.
They will offer loans at lesser rates to distribution companies, while the power ministry is pushing the finance ministry to give the sector access to low-cost funds at repo rate.
Singh is confident that electricity demand will revive soon, and that measures to boost MSME, real estate and power sectors will put the economy back on track.
He said central public undertakings such as NTPC, DVC and Power Grid Corp will take a hit of ₹3,000 crore by waiving off fixed charges.
These charges are for electricity not drawn by discoms during lockdown.